The rocket's red glare: consumer comfort down

July 3, 2014 07:08 AM

Consumer comfort fell last week for the first time in more than a month, ending its best quarter since the last U.S. recession began almost seven years ago on a sour note.

The Bloomberg Consumer Comfort Index fell to 36.4 in the week ending June 29, after posting gains through most of last month, from 37.1 in the prior period. The gauge averaged 35.8 from April through June, the highest quarterly reading since the last three months of 2007.

With the number of Americans hitting the road for the Fourth of July holiday weekend projected to be the highest since 2007, elevated gasoline prices will probably continue to weigh on Americans’ moods. At the same time, the biggest employment gains in eight years will give households the wherewithal to boost spending, giving the economy a lift.

“The major risk to the improvement in consumer confidence at the point is rising food and gasoline prices,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “While the price of food is likely to continue rising, the major focal point with respect to near-term confidence and household consumption will be if the price of gasoline peaks the week of the July 4 holiday, as it traditionally does, or continues to rise due to geopolitical tensions in the middle east.”

Employment and housing figures have buoyed confidence. The Labor Department’s payrolls data today showed employment climbed by 288,000 in June, exceeding the median forecast of economists surveyed by Bloomberg. The jobless rate unexpectedly dropped to 6.1 percent, the lowest in almost six years.

‘Flat’ earnings

“While, the June jobs report is very encouraging, average hourly earnings remains flat at roughly 2 percent,” blunting some of the optimism, Brusuelas said.

The Dow Jones Industrial Average climbed above 17,000 for the first time on the improving labor market. The Standard % Poor’s 500 Index climbed 0.3 percent to 1,980.81 at 9:40 a.m. in New York.

In the final week of the quarter, Americans were a little more downcast across the board. Each of the three components of the comfort index slipped. Americans’ view of the buying climate lost 1.7 points, dropping for the first time in five weeks to 31, while their assessment of personal finances decreased to 50.9 from 51.1.

The gauge for the state of the economy was little changed at 27.3, losing 0.1 points from the week before, which was the best reading since August.

Auto sales

The quarter ended on a high note for automakers. Sales of cars and light trucks climbed to a 16.9 million annualized rate last month, the most since July 2006, industry figures showed this week.

General Motors Co. (NYSE:GM) surprised investors with a 1 percent sales gain from a year earlier after analysts projected a decrease. Demand at Ford Motor Co. (NYSE:F), Chrysler Group LLC and Nissan Motor Co. (TYO:7201) also beat estimates.

Ellen Hughes-Cromwick, Ford’s chief economist, is projecting sales will remain strong as the worst of the increase in fuel costs is probably over.

“The economy is improving, likely to be on pretty good footing over the course of the second half,” she said during a July 1 teleconference. The outlook “does look very promising.”

Last week’s comfort index positioned part-time worker confidence at its highest since March 2008. Full-timers lost a little ground for a second week after reaching a one-year high in mid-June.

Demographic breakdowns

Confidence among men climbed to an eight-week high, while women’s sentiment fell to a five-week low. Older Americans reported their best sentiment reading since mid-December, and the outlook of those earning between $15,000 and $25,000 rose to an eight-week high.

Since May, the Bloomberg Comfort Index has been presented on a scale of zero to 100 rather than the previous minus 100 to 100, with the midpoint shifting to 50 from zero. The change is also reflected in the gauge’s components. It doesn’t affect the measures’ relationship to each other or their correlation with other economic indicators. Historical data have been revised and analysis of trends, values and other variables also have not been affected.

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